The Passamaquoddy people were the first to make their home along the St. Croix River. They dispersed and hunted inland in the winter; in the summer, they gathered more closely together on the coast and islands, and primarily harvested seafood, including porpoise.[2] In 1604, French explorer Samuel de Champlain and his men spent a winter here. The Passamaquoddy were moved off their original lands repeatedly by European settlers since that time.

During Queen Anne's War, in response to the French Raid on Deerfield, New Englander Major Benjamin Church raided the Acadian villages of Castine, Maine (then known as Penobscot). From the Raid on Castine, Maine, Church learned that Michel Chartier, who was granted the land of present-day St. Stephen, was building a fort at Passamaquoddy Bay. Church and his men arrived at the Passamaquoddy Bay on board the Province Galley, Gosport and Fearly and several other vessels.[3] Church travelled up the St. Croix River to St. Stephen and, on June 7, 1704, took Chartier by surprise and his family fled into the woods.[4] On June 13, Church reported they were destroying the crops of the Acadians and the Acadians and Natives fired upon Church's troops and a three-hour exchange ensued. Church killed and imprisoned Acadians and Natives, with the total number being 35. One of Church's men was wounded. They pillaged and plundered the community.[5]

After the Raid on St. Stephen, Church moved on to raid other Acadian villages in the Raid on Grand Pré, the Raid on Piziquid, and the Raid on Chignecto.[6]

Immediately prior to Confederation, the Legislature of New Brunswick passed a bill that incorporated the Houlton Branch Railway Company (HBRC) with the aim to build a railway between Debec, New Brunswick and Houlton, Maine (thus to complete a portion of the St. Andrews and Quebec Railway). In 1870, the Legislature of New Brunswick passed an Act, authorising the County of Charlotte to issue debentures to pay a bonus of $15,000 to the HBRC, to encourage it to complete the railway. The debenture could only be issued if authorised by a public meeting of the ratepayers of St. Stephen, who would assume the obligation of paying for the interest and principal of the debenture. A majority of the ratepayers of St. Stephen duly passed the necessary vote and the County issued the debenture. Some residents of St. Stephen who opposed the measure challenged the tax assessment in the Supreme Court of New Brunswick, arguing that the provincial Legislature lacked the constitutional authority to authorise a tax to support the building of an international railway, as that would intrude on the exclusive legislative authority of the Parliament of Canada.

In 1873, the Supreme Court of New Brunswick ruled that the provincial taxation statute was unconstitutional, because it intruded on federal jurisdiction over inter-jurisdictional railways.[7] The supporters of the railway measure appealed the case to the Judicial Committee of the Privy Council, at that time the court of last resort for Canada within the British Empire. The Judicial Committee, in the case of Dow v Black, allowed the appeal and held that the taxation statute was within provincial authority.[8]

Prior to World War II, St. Stephen’s local economy was heavily based in the lumber and ship building industry. At the end of the 18th century, there were no less than one hundred various dry docks and slips along the river (both shared by the cities of Calais and St. Stephen). Many of the larger families in the area (such as the Merchies, and the Todds) ran much of the town’s economy due to the monopoly they had on the St. Croix River system. Many various lumbering companies were stationed along the river, both from the Canadian and American side, and they distinguished each company’s lumber from another’s by branding each log with a specific symbol, unique to each lumbering company. Both the lumbering and shipping industry employed thousands of individuals, and by the early 1900s, 200 ships had been built in the St. Croix waters.[10] However by the end of World War II the town's main employers were the Ganong Bros. Limited chocolate company (established 1873, Canada's oldest candy company), and—with 20,000 spindles—Canada's second largest textile mill, which opened its doors in June 1882 on the river where it operated with its own hydro-electric generating station, the Milltown Dam.[11] Electricity generated by the Milltown Dam is exported to the United States, connected to a 69kV transmission circuit owned by the Eastern Maine Electric Cooperative, an electric utility serving Calais.[12] In 1957, the textile mill closed, and it was demolished in 1972.[11] At one time, the St. Croix Cotton Mill employed as many as 1200 persons at peak periods.[11] The confectionery maker remains a key employer.

In circa 1866, the Douglas Axe Manufacturing Company built their factory on Dennis Stream. In 1883, it was purchased by E. Broad & Sons,[13] who operated the company until 1895 when a new company was formed under the name of St. Stephen Edge Tool Co. In 1911, Harry Broad formed the Mann Axe & Tool Co. with Charles Heustis as president and manager. With two storeys of the original factory now in use, they acquired the buildings of the Bug Death Chemical Co. On January 29, 1915, the St. Croix Water Power Company and the Sprague's Falls Manufacturing Company Limited, petitioned for approval of a dam and power canal and the obstruction, diversion, and use of the waters of the St. Croix River at Grand Falls. The state of Maine and the province of New Brunswick both decided on this matter, as it would affect both communities equally. The decision was made November 9, 1915.[14] The new factory began operation in 1922. The factory was water powered from Dennis Stream and the original Hercules water turbine was still in use. In 1930, the factory became a victim of the Great Depression, but managed to continue until 1943 when the business closed.[15]

In the 1970s, the municipalities of St. Stephen and Milltown joined together to become what is now simply known as St. Stephen. For a short time, the town was called St. Stephen-Milltown, but the new name not having caught on, reverted to simply the Town of St. Stephen. But for official use is called the Town of St.Stephen-Milltown as written agreement stated at amalgamation in 1973.

Every August since 1985, the town plays host to the week-long Chocolate Fest, celebrating their rich and delicious heritage. That spotlight on the wonder of chocolate resulted in the opening of The Chocolate Museum in 1999 and its expansion in 2009. In 2000, St. Stephen was given the title of "Canada's Chocolate Town." The festival mascots are the Great Chocolate Mousse and Tiffany.

The December 2010 flood upstream on a tributary to Dennis Stream caused hardship to the businesses that were located on or near King Street. Shoppers Drug Mart, the Winsome Inn, Sobey's, Stationery Plus and the Irving Circle K gas station and convenience store, The Bargain Shop, Dollar Store, and the NB Liquor Store, were all affected by the 13 December rainstorm, some more than others. The flood caused many layoffs, and Sobey's eventually closed down. The problem was due to the replacement of a trestle bridge in Dennis Stream with culvert pipes.[16]

The climate is temperate but greatly affected by the size of the Bay of Fundy. The bay is a cool body of water which acts as an air conditioner in the summer and diverts major snow storms in the winter. The bay never freezes. The average summer temperature is 22 °C with the average winter temperature being -3.9 °C.

Environment Canada maintains a testing programme for water quality at the Milltown Dam generating station.[20]

The St. Croix River marks a section of the international boundary between the United States and Canada, forming a natural border between the towns on either side of the river bank. This section of the river and the land surrounding it, was fought over heavily by both the French and the English during the 1600s, as both sides believed the river lands should be part of their territory . Later, the river was used as a boundary between the Americas and Canada, and many believed the line between the two countries should be drawn down the middle of the river itself . However, there were still many smaller branches to the river and various islands that were not spoken for, nor could be decidedly belonging to one country or another.[21]

Until it was discontinued, passenger rail service was once housed in St. Stephen at the Canadian Pacific Railway station. The building now contains a New Brunswick visitor and tourist information centre, since the spur line was decommissioned and turned into the Riverfront Walking Trail.

Residents of St. Stephen and Calais often regard their community as one place, cooperating in their fire departments and other community projects.[25] As evidence of the longtime friendship between the towns, during the War of 1812, the British military provided St. Stephen with a large supply of gunpowder for protection against the enemy Americans in Calais, but the town elders gave the gunpowder to Calais for its Fourth of July celebrations.[26]

For much of their history, both towns' fire departments have responded in tandem to any fire call on either side of the border.[27]

Construction began in 2008 on a third bridge connecting the two communities. The International Avenue Bridge was officially opened in January 2010.

Every year, the town co-hosts a weeklong International Festival with the neighbouring town of Calais, Maine.

The Ganong Company continues to be the town's most significant employer. Other employers with factories are located along Progress Avenue, and include flakeboard and resin manufacture, a machine shop, a bottler and a marine environmental remediation business.[28] The town has a wide variety of small businesses, a list of which can be found in the local business directory.[29]

St. Stephen has three media organizations: two radio stations CHTD-FM, known as "The Tide", plays country music and offers regular news updates, CJRI-FM broadcasting from Fredericton studios operates a St. Stephen transmitter at 99.9 on the FM dial with a southern gospel music format along with Canadian news, weather and sports. Founded in 1865, the Saint Croix Courier is the town's weekly newspaper, and also publishes a weekend edition, the Courier Weekend. The Courier is one of the few papers in New Brunswick that is not owned by the Irving family.

St. Stephen has a number of primary and one secondary school, a public library, several churches, two museums, two community swimming pools, an enclosed hockey arena, a number of retirement homes, and a 44-bed hospital.[30]St. Andrews, some 30 km distant, was the county seat until the county system was replaced in the 1960s, and thus was the location for the courthouse and gaol for the region, until the courthouse moved to St Stephen. In 2015 the province proposed to remove those functions entirely to Saint John.

St. Stephen can be described as government town, with large offices for Federal government services Canada Post and the Customs and Border Agency, Provincial government services such as Service New Brunswick, and Municipal government services such as solid waste and zoning.[31][32][33]

A hotbed of baseball interest, in 1934 the Boston Braves of baseball's National League played an exhibition game in St. Stephen against the local "Kiwanis" team. The enthusiastic fans in attendance numbered more than half the town's population. In 1939, the local baseball team won its ninth consecutive New Brunswick senior championship, topping off a decade of dominance in the sport at both the provincial and Maritime levels.

A building which housed the former Parsons Printing business suffered fire damage in May 2010. This building housed the first basketball court in Canada.[34]

St. Stephen is served by Route 1 and Route 170, which runs through town along King Street and Milltown Blvd. U.S. Route 1 serves the area by a connection through Main Street, which crosses the St. Croix River into the United States.

^THE Boston News-Letter No. 10, June 19–26, 1704, p. 2 as recorded in "An historical digest of the provincial press; being a collation of all items of personal and historic reference relating to American affairs printed in the newspapers of the provincial period beginning with the appearance of The present state of the New-English affairs, 1689, Publick occurrences, 1690, and the first issue of the Boston news-letter, 1704, and ending with the close of the revolution, 1783" p. 94 (See Boston News Letter)

^Benjamin Church, Thomas Church, Samuel Gardner Drake. The history of King Philip's war ; also of expeditions against the French and Indians in its Eastern parts of New England, in the years 1689, 1692, i696 AND 1704. With some account of the divine providence towards Col. Benjamin Church. pp. 262−270